Start-up Legal Basics

22. May 2017

Be sure to make a founders’ agreement

If you’re planning to run your business with co-founders, then a founders’ agreement is the perfect place to start. There might arise many questions, for example: what role does each founder play? What happens if someone decides to leave the company? How will the ownership of the business be splitted? Who gets what percentage of the company? A simple founders’ agreement is the key tool to answer these questions and solve any later confrontations. Establishing the general obligations and a reverse vesting clause will enable other founders to take action in case one of the venture partners stops to contribute.

Think about your brand

There can be a ton of registered trademarks that might be similar or even identical to your brand. This may pose a risk that your product or services will be banned until you change your brand. To avoid such situation, check first the trademark registries, whether there are any trademarks similar to your brand in your field of business. A potential lawsuit or legal problem will scare off potential investors and can lead to financial havoc if you’re a small startup. Planning ahead will help you avoid legal hassles so you can focus on growing your business.

Motivate key employees

You can motivate your employees, mentors or service providers by granting them the one thing that the early stage start-ups have – equity. Granting equity has shown to integrate employees better with the company, add additional motivation and, at the same time, enables to use the available funds for other burning needs. All this can be achieved via option agreements, which establish that an employee (or other) will become a shareholder of the company, if he or she continues to contribute into the development of the company for a period of 3 years or more.

Simplify negotiations with investors

Signing a term sheet in course of investment negotiations is nearly always the smart option. A term sheet sets forth, in a simple form, the key conditions between founders and investors under which the investment shall be made, such as the investment amount, company valuation, a reverse vesting clause, decisions which require a prior approval of investors, etc. While term sheet is non-binding, the investment negotiations can be a long process and the term sheet provides a clear frame upon which any further discussions regarding more specific conditions can be based on.

Make sure the intellectual property is owned by the company

Intellectual property rights protect the core value of all technology-based companies. Transferring the ownership of intellectual property to the company at as early stage as possible can save very significant problems down the line because, by default, each founder owns the software and other copyrighted works he or she creates as well as the patents the founder files on his or her behalf. Therefore, for any start-up company, we strongly suggest to create intellectual property agreements, which guarantee that the intellectual property already created as well as the IP developed in the future would be owned by the company, rather than the founders themselves.

USA welcomes EU tech businesses with open arms

Author Merlin Salvik Partner, Attorney-at-Law merlin.salvik@hedman.ee Merlin Salvik
10. May 2016

I was recently offered the unique opportunity to join Estonian Prime Minister Taavi Rõivas and a very prominent business delegation on a fact-finding mission to the USA in order to promote Estonia as an investment destination; and also to lay the groundwork for Estonian companies looking to access the US marketplace.

A client asks: How does taxation work if a Finnish resident, who is a natural person, receives a management board member salary from an Estonian company?

25. September 2015

The Income Tax Act § 29 section 2 states that in Estonia the non-resident management board member salary shall be taxed with income tax so far as the work was done. In other words, the Estonian company has an obligation to declare the paid amount and pay income tax on it. Thereby, the management or supervisory board member’s salary income taxation does not depend on where the actual work happens or where the service is performed.

What to bear in mind when providing management services through a private limited company?

25. September 2015

The Supreme Court’s Administrative Law Chamber delivered an important decision on the 11th of September regarding the requalification of management and consultancy services as  salaries by awarding the right to the Tax and Customs Board.

The eternal problems with purpose

Author Liisa Linna Vandeadvokaat liisa.linna@hedman.ee Liisa Linna
17. March 2015

There is probably no real estate developer who hasn’t felt desperation due to a detailed plan solution which has been established several years ago. This solution can hinder fulfilling the new demands of a changed environment. Above all both the designated volume of construction and the intended purposes of the plot usually become outdated. Especially the latter is a very troublesome part of established building rights, because plans to designate another function for the plot and the building are caught up behind it.

Long live freedom of construction!

Author Liisa Linna Vandeadvokaat liisa.linna@hedman.ee Liisa Linna
2. March 2015

Everybody’s building in July

On the 1st of July the new Building Code and Planning Act, finally approved by the Parliament, comes into force.

Together with the adoption of new legislation the current legal system based on a building restriction shall be replaced with a new paradigm based on the freedom of construction. The new regulation shall be effective only if everybody involved in the building process is absolutely law-abiding and demands the same compliancy from others.

The main issues of employing a foreigner

23. February 2015

In addition to the general conditions for issuing a residence permit, as for example the actual place of residence and sufficient legal income, the existing Aliens Act provides a number of prerequisites for bringing employees to Estonia from third countries. For the employer, the requirements for employing foreigners are rather complicated.

Drones in your garden

15. January 2015

The right of property owners is based on a historic principal – who owns the land, owns the airspace above it extending to heaven and the earth beneath it extending to hell. In the Law of Property Act it is stated as follows: Immovable property ownership extends to the ground, airspace above and into the earth beneath the surface to such height or depth to which the interest of the owner extends in the use of the immovable. The owner of an immovable shall not prohibit an activity which occurs at such height or depth to which according to the purpose of use of the immovable the interest of the owner does not extend.

Drones at your window

6. January 2015

If in the past it was feared that poltergeist could appear behind the window, then today similar dread is created by a flying drone. How to fend off a drone and what would be the appropriate legal remedy?

Now you too can enjoy the benefits of Estonia’s e-solutions!

Author Merlin Salvik Partner, Attorney-at-Law merlin.salvik@hedman.ee Merlin Salvik
10. November 2014

Unless you have been cocooned away for the past five years, you have no doubt heard about the innovative e-solutions that the Estonian government has introduced to make interaction between the state and its residents smoother and easier. Estonians take great pride in being able to file their taxes online, to authorise transactions and enforce contracts with digital signatures, to observe all their personal data records online in one place and to even vote online.